Consultancy Zefer nabs funding amid lean times

The Internet consultancy says it has secured an additional $20 million in funding at a time when financing has become scarce in the Internet consulting industry.

January 2, 20024:43 PM PST

Internet consulting company Zefer said Wednesday it has secured an additional $20 million in funding.

As previously reported by CNET News.com, the investment, from venture capital firm GTCR, comes at a time when financing and investor optimism in the Internet consulting industry have become increasingly scarce.

In September, Zefer withdrew its initial public offering, citing the rocky market conditions for IPOs in the sector. But it was not the first time the Boston-based company, which helps clients with Web development and advises them on their Internet strategies, had withdrawn its public offering plans.

Citing the same concerns, Zefer in April postponed its Nasdaq debut. At that time, U.S. markets were getting slammed and technology stocks were shedding the most value.

Christine Overby, an industry analyst at Forrester Research, said the news
of the new funding comes as a surprise, especially when the sentiment surrounding Net consulting companies overall has been pessimistic.

"This is certainly a good shot in the arm for Zefer," said Overby, who named Zefer in a recent report as a likely acquisition target because it is one of the few that remains privately held.

Though a number of Zefer's rivals continue to swim in rough waters,
Overby said the company has proven its ability to do good work for larger
clients. The company has made aggressive efforts to tackle more lucrative
areas such as business-to-business engagements rather than just designing
Web sites, she added.

Zefer, which did not say whether it will continue to pursue an IPO, said Wednesday it has added about 35 new clients since the spring, including H.J. Heinz, Siemens, Microsoft and iPlanet--the Sun Microsystems-Netscape alliance.

The company, founded in 1998, says it has made the transition from
providing services to dot-com clients to serving larger, blue-chip types that are more apt to require complex projects and have more money to spend on consulting work.

In recent months, many players in the Internet consulting industry, including iXL, Viant and Scient, have suffered from a sudden market shift, as a growing number of dot-coms flounder. Several Web consultancies, once highflyers on Wall Street, have been paralleling the shaky path of other dot-coms, which were once the heart of their client base.

Zefer said it plans to use the investment to fund its continued
expansion in the United States and overseas. The company recently opened a London office, its first presence in Europe.

Though Zefer's new capital does add a twist to the somewhat stark scenario it has been facing, the company will need more than just money to help it get over additional hurdles in the ever-changing market.

"Over the next six months, we?re still going to be experiencing a shakeout (in the sector)," said Overby. "Many of the firms of Zefer's size will either be acquired or shut their doors."

The $20 million financing round follows GTCR's initial investment in April 1999 of $100 million in the company. GTSR is Zefer's primary investor.